For Future Sustainable Board Members, Vision is Key

Boards that take a vision-oriented approach to sustainability reap greater returns for overall company success. As next generation board leaders consider the sustainability strategy they want to adopt, understanding the strengths and weaknesses of these two approaches is key. Using data from our 2022 Global Leadership Monitor Survey, Russell Reynolds Associates (RRA) recently examined two divergent approaches to sustainability among boards. 310 board directors were asked to select which option best represented their board’s the primary function as it relates to the company’s environmental, sustainability, and governance.

^{*3% of board directors answered “not applicable” to the sustainability oversight question}

Board leaders are more focused on sustainability as a future impact to business than their executive counterparts, with 26% ranking climate change and environmental damage as one of the top five threats to impact their business over the next 12-18 months, compared to 16% of global executives and next-generation leaders.¹

However, next-generation leaders feel less confident in their supervisory/non-executive board than board directors themselves feel, with only 65% of next-generational leaders reporting that they feel their board effectively embraces the opportunities of sustainability, compared to 80% of board members. This highlights the need to build a strong board leadership pipeline that encompasses sustainability strategy, identifying future board leaders who both understand the business imperative for sustainability and can meaningfully articulate their sustainability-oriented actions to the rest of the organization.

“When it comes to demonstrating clear fluency or operational experience in sustainability matters, our observation is that there is a generational shift happening in boardrooms, and more of the newer directors, including first-time directors, have had more hands-on experience in their operational executive roles on sustainability-related matters, as those matters have risen up the corporate agenda.”²

Michelle Edkins
Managing Director, BlackRock Investment Stewardship

Reaction-Oriented Boards vs Vision-Oriented Boards

Reaction-oriented boards tend to bend to changing short-term demands, rather than creating a long-term vision that they engage with prior to reacting. This constant strategy redirection can make these boards more agile, but also ensures that it will take longer to reach the organization’s sustainability goals. Conversely, vision-oriented boards are more hands-off with goal execution—they are involved in strategy planning, but not the implementation.

Different board strategies for sustainability may make sense at various stages of organizational maturity, sustainability strategy and initiatives, or depending on other organizational priorities, such as diversity, equity, and inclusion, or planned growth. Reaction-oriented boards tend to be larger companies than vision-oriented boards, with 12% of reaction-oriented boards coming from companies of $100 billion USD revenue or greater, and only 1% of vision-oriented boards from the same group.

^{Source: RRA Global Leadership Monitor Survey 2022. N = 30 reaction-oriented board members, 222 vision-oriented board members.}

^{*The bars refer to revenue of responding company}

Strategize, Then Act: Measure Twice, Cut Once

Vision-oriented boards feel their leadership teams are more prepared to face climate change and environmental damage, uncertain economic growth, and the availability of key talent/skills. Vision-oriented boards are over 4x more likely to feel that their leadership team is prepared to handle uncertain economic growth. Additionally, vision-oriented boards also tend to be more confident that their board and leadership team effectively embrace sustainability opportunities.

^{Source: RRA Global Leadership Monitor Survey 2022. N = 30 reaction-oriented board members, 222 vision-oriented board members.}

^{Source: RRA Global Leadership Monitor Survey 2022. N = 30 reaction-oriented board members, 222 vision-oriented board members.}

Vision-oriented boards’ confidence is warranted—over half of board directors in this category reported that their company has outperformed against industry average shareholder returns over the past two years, while only 10% of reaction-oriented boards could report the same.

^{Source: RRA Global Leadership Monitor Survey 2022. N = 30 reaction-oriented board members, 222 vision-oriented board members.}

With a fast-paced global economy and the pressing concerns of environment and social movements, it can be difficult to have the discipline and fortitude to focus on a long-term sustainability plan before springing into action. However, a clear and defined goal provides a north-star to innovate against, which will benefit overall company success.

To ensure that boards are well-equipped to deal with evolving organizational strategies, boards must keep sustainability at the forefront of their involvement with investors, internal and external stakeholders, and the CEO. When deciding how to structure board involvement in sustainability issues, it is important to remember that change comes from within. Next-generation board directors need to be poised to develop a strategic sustainability vision and, most importantly, have the conviction to adhere to it.

Read more about preparing next-generation sustainable board directors here:

Next-Generation Sustainable Board Directors | Russell Reynolds Associates

^{1 Source: RRA Global Leadership Monitor Survey 2022. N = 565 Next-generation leaders}

^{2 Chrissa Pagitsas, 2022. "Chief Sustainability Officers At Work," Springer Books, Springer, number 978-1-4842-7866-6, June.}

Authors

Beth Hawley is a member of Russell Reynolds Associates’ Center for Leadership Insight. She is based in Chicago.

Emily Meneer is leads Russell Reynolds Associates’ Sustainability Practice Knowledge team. She is based in Portland.